The IMF’s largest-ever allocation of special drawing rights injected $650 billion of much-needed reserves and liquidity into the world’s economies two years ago as they confronted the pandemic. SDRs are the IMF’s unique international reserve assets that member countries generally hold as official reserves.
Advanced economies with strong external positions obtain SDRs on top of already substantial reserves. Their portion of the SDR allocation, about $350 billion, in many countries in a sense sits "dormant” because countries are already well protected. If they can be channeled from those economically stronger member countries to support their vulnerable low- and middle-income counterparts, they can provide real benefits to countries who need it most.
Since 2021, that is exactly what has happened. The Group of Twenty and other economically stronger member countries have voluntarily pledged more than $100 billion of these reserves.
The Chart of the Week shows how our mechanisms for large-scale voluntary channeling of these resources benefits countries through two key lending instruments: our Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust. These trusts allow us to support our vulnerable and low-income members confronting multiple and varied challenges.
Since the pandemic, the IMF has provided about $30 billion in interest-free loans to 56 low-income countries through the PRGT. Such financing is a source of crucial policy and balance of payments support to deal with urgent shocks, such as the food shocks in Malawi and Haiti, and to support programs that involve debt restructurings such as in Chad and Zambia. It helps restore macroeconomic stability and strengthen economic institutions, which is critical to unlock much needed additional financing from donors and the private sector for growth-enhancing investments.
With the help of SDR channeling and other contributions, we are in a better position to meet the needs of low-income member countries by increasing our financial support through the PRGT to $40 billion over 2020-24—almost five times the historical average.
The RST, created less than a year ago, is the first-ever mechanism for the IMF to provide affordable long-term financing to help countries address structural challenges like climate change and pandemic preparedness. Members have put their SDRs to work, providing channeling and other contributions totaling $41 billion to the trust, which is expected to contribute toward meeting an estimated $29 billion in financing.
The bottom line is that SDR channeling is well underway and proving essential to meeting the demand for support through PRGT and the RST. And such backing is especially timely. Our medium-term growth forecast is the lowest in decades amid deepening divergences, as our latest World Economic Outlook detailed this week. With inflation still elevated, policy rates are poised to stay higher for longer, and that will further squeeze borrowers. And many countries still endure economic scars from the pandemic just as they grapple with multiple global shocks, including from food insecurity and climate change. They will need more IMF support, not less.
While these challenges endure, so will our commitment to help members address them by ensuring that the IMF is adequately resourced to meet our members’ growing needs. SDR channeling is a mechanism that has proven effective in this regard. Now we must keep up this work—and build on it.
We have been discussing with our members how to further scale up SDR channeling for the benefit of the PRGT and RST and were encouraged by new pledges during this week’s Annual Meetings from several members to do so. This show of solidarity is so necessary in our uncertain world and sends an important signal of what is possible when we come together for the broader common good.
—For more, listen to the recent IMF podcast with Strategy, Policy, and Review Department Director Ceyla Pazarbasioglu on how SDRs have been supporting vulnerable countries.
